The mortgage fraud case against Letitia James is ‘bupkis’, experts say

A prosecutor installed by Donald Trump may have been able to secure an indictment against the New York attorney general, Letitia James, but actually obtaining a conviction may be an uphill battle, legal experts say.

Even before a grand jury handed down the indictment on Thursday, there was already deep skepticism about possible charges. Career prosecutors in the US attorney’s office for the eastern district of Virginia had looked at accusations James committed mortgage fraud and concluded there was no probable cause to charge the case. Lindsey Halligan, Trump’s handpicked interim US attorney, nonetheless went ahead and presented the case to the grand jury. Her decision to do so reportedly caught top justice department officials off-guard.

The indictment handed down on Thursday charges James with bank fraud and making a false statement when she secured a mortgage to buy a second home in Norfolk, Virginia, in 2020. As part of the purchase, James signed a rider that indicated she would use it as her second home and prohibited her from renting it out, according to the indictment. James proceeded to then rent out the home, prosecutors allege. By lying on the mortgage statement, prosecutors say, James secured a better mortgage rate and a seller credit that saved her about $18,933 over the life of the loan.

“In this case, prosecutors will be required to show that at the moment James signed the mortgage paperwork, she was aware of the provision regarding a secondary home, that she intended to use it for some different purpose, and that she intended to obtain a financial benefit as a result of her deceit,” said Barbara McQuade, a former US attorney for the eastern district of Michigan. “That can be very difficult for a prosecutor to do because we cannot read other people’s minds. Anyone who has ever participated in a mortgage closing is familiar with the daunting pile of papers they put in front of you.”

The second-home rider James signed does not prohibit renting the home outright, Adam Levitin, a law professor at Georgetown University, wrote in a blogpost. Instead, the rider prevents the owner from giving control over rental decisions to someone else. The agreement also only imposes the restriction starting one year after the agreement. The indictment made public on Thursday does not say when James rented the home or for how long.

The rider also includes an exemption for “extenuating circumstances”, Levitin noted, pointing out that the mortgage was obtained in August 2020 during the Covid-19 pandemic.

“I’m unaware of the federal government having previously charged anyone for fraud based on renting out a second home,” Levitin wrote in the post on Credit Slips. “It’s clear why the career prosecutors in the Eastern District of Virginia refused to bring a case: James doesn’t appear to have made any misrepresentation in her mortgage because the mortgage does not directly prohibit rentals.”

James has forcefully denied the charges. Last month, Trump publicly admonished the US attorney general, Pam Bondi, to indict her, along with the former FBI director James Comey and California senator Adam Schiff.

“These charges are baseless, and the president’s own public statements make clear that his only goal is political retribution at any cost. The president’s actions are a grave violation of our Constitutional order and have drawn sharp criticism from members of both parties,” James said in a statement on Thursday evening.

Trump’s public statements, combined with the conclusion of career prosecutors about a lack of probable cause, make it likely James will bring a selective prosecution argument to try to get the case thrown out.

“Normally, a claim [that] this is a vindictive prosecution does not work,” said John Coffee, a professor at Columbia Law School. But, he added: “You don’t usually have the president calling for these sort of things.”

The charges against James come as William Pulte, the head of the Federal Housing Finance Agency, has deployed mortgage filings to attack Trump’s rivals. In April, Pulte, a staunch Trump ally, sent a criminal referral to the Department of Justice regarding two different real estate transactions involving James. Neither of the transactions in the referral were the ones actually charged this week.

Pulte has also accused Schiff of mortgage fraud as he has the Federal Reserve governor Lisa Cook, whom Trump is trying to remove from the central bank. In Cook’s case, Pulte has made an allegation similar to the one against James, alleging she rented out a property she indicated was her second home on mortgage documents.

Also unusual in James’s case is the amount of money she is said to have benefited from because of the fraud. Typically, investigators in the inspector general’s office at the Federal Housing Finance Agency, which handles mortgage fraud investigations, pursue cases where there are substantial losses to Fannie Mae or Freddie Mac, government-sponsored enterprises that support the housing market by guaranteeing mortgages.

Even the most junior prosecutor in a US attorney’s office would turn down a case with a loss amount that low, said Jacqueline Kelly, a former federal prosecutor in New York who is now a partner at Boies Schiller Flexner.

“It would never be signed off on by a supervisor with a loss amount that low,” she said. The low loss amount could also bolster James’s claims of selective prosecution. “When she has to prove that someone similarly situated would not have been prosecuted, she is on really strong ground there because if you look at other cases charged under these same statutes, you’re not going to find one similar to this at all.”

While the length of James’s loan is not clear, if it was a standard 30-year mortgage she would have defrauded the government out of about $633 each year.

“That’s bupkis,” said one former federal prosecutor who spoke on condition of anonymity to avoid professional repercussions. “Are you really going to believe when you get up there that the attorney general of New York would commit this willfulness over $600 a year?

“It’s a race as to whether this is weaker than the Comey case or stronger because they’re the two weakest cases I’ve ever seen in my life.”